MBAA 512 Assignment #2 (Due: Wednesday March 11, 2021 at 1pm Pacific
time)
 Note the following instructions:
(i)
Use the “Submission folder” created in VIU Learn to submit your assignment.
(ii)
(iii)
Your answers must be typed.
Your submission must not contain any diagram
Name:
Student #:
PART A: ELASTICITY
(1)

The total number of vehicles entering Canada from the US increased from 1,193,966 in August
2018 to 1,240,799 in August 2019. (Source: Statistics Canada, 2021)

“The U.S. average retail price for all formulations of regular gasoline on August 26, 2019, was
$2.57 per gallon (gal), 25 cents/gal (9%) lower than the price at the same time last year”
(Source: U.S. Energy Information Administration, August 2019)
(i)
Calculate the price elasticity of demand for Canada border crossing by vehicles from the US and
interpret your results in non-economic terms (2 marks)
∆ IN QUANTITY = 1240799-1193966 = 46833. ∆
(ii)
With COVID-19 and the temporary closure of the Canada-US border to non-essential travel, is
the concept of price elasticity of demand still relevant to doing business in Canada, especially in
the travel and tourism sector? Explain briefly. (2.5 marks)
(2)
The Globe and Mail (December 16, 1997) reported that milk consumption declined following
price increases: “Since the early 1980s, the price of milk in Canada has increased 22 per cent.
As prices rose, the demand for milk fell off. Total [consumption] of milk on a per capita basis
dropped . . . to 2.62 hectolitres in 1995 from 2.92 hectolitres in 1986.”
(i) Use these data to estimate the price elasticity of demand for milk. (1.5marks)
(ii) According to your estimate, what happens to milk producers’ revenue when the price of milk
rises? (1 mark)
(iii) Based on the information provided, why might your calculation of the elasticity be unreliable? (2
marks)
PART B: COST OF PRODUCTION
(3) Your parents own a family bakery store which has been struggling to make profit in the past two
years. They are thinking of laying-off all workers and replacing them by family members in order to
cut down the wage bill. What do you think about this business strategy and will this be the game
changer by preventing profits from falling? Under what conditions will this be a good strategy? (3
marks)
PART C: MARKET ANALYSIS
(4) Pacesetter is a manufacturer of three-ring binders operating in a perfectly competitive industry. The
Table below shows the firm's cost and revenue schedule
Quantity
(cases)
Variable
Cost
Total
Cost
0
1
2
3
4
5
6
7
8
9
$0
30
50
$78
108
Marginal
Cost
Average
Variable
Cost
Average
Total Cost
Total
Revenue
Profit (or
Loss)
$44
136
142
162
114
150
190
318
(i)
Complete the Table above by filling in the blank cells. (3 marks)
(ii)
Based on the above Table, in order to maximize profit, Pacesetter’s should produce
________9_ binder cases, In doing so it will realize a profit of ____132___. (0.5 mark)
(iii)
If the variable costs increase by 2% at each level of output, should the firm continue to
operate? Why? (2.5 marks)
Yes it operates as it makes lesser losses at different output levels
Specify the levels
In view of events listed in “iii” should other firms enter this industry? Why? (2 marks)
(iv)